TUI Travel Plc, Europe’s largest tour operator, said it expects its first-half loss to widen this year due to a later Easter and forecast the French unit will break even in 2015.
The predictions came even as TUI said underlying operating profit rose 13 percent to 555 million pounds ($913 million) in the year ended September when adjusted for currency swings, beating a company forecast for at least an 11 percent gain. French customer numbers dropped 19 percent amid political unrest in Egypt and northern Africa, TUI Travel said in a statement today.
“France was a perfect storm,” Peter Long, chief executive officer of the Crawley, England-based company, said on a conference call with journalists, referring to the impact of unemployment in the country coupled with the strife in those markets, favorites of the French for holidays.
The company cut 35 percent of its offering in France after demand for trips to North Africa slumped and the economy suffered from a 16-year-high unemployment rate. The French unit aims to eliminate losses by 2015, the CEO said.
The stock fell as much as 1.2 percent. The shares traded 0.1 percent lower at 383.50 pence at 10:46 a.m. in London, paring the gain this year to 36 percent and valuing the company at 4.3 billion pounds.
“France looks horrendous, while Germany is showing negative customer growth,” James Hollins, a London-based analyst at Investec Securities, said in a note to clients, adding that the first-half forecast places “significant pressure” on the improvement needed in the 2014 summer season for the company to meet its earnings target.
Cost cuts added 46 million pounds to full-year operating profit, while favorable currency swings added 34 million pounds. Sales rose 4 percent, helped by bookings from U.K. and Scandinavian customers, TUI said. Customers in Germany, the company’s largest market, declined 7 percent.
Easter in 2014 will take place during the company’s fiscal third quarter. TUI Travel had an underlying first-half operating loss of 289 million pounds, the company said in May.
Customer numbers in the mainstream operation are down 8 percent for the current winter season, after the company sold 60 percent of its offering. When excluding Egypt, client numbers are down 4 percent. The mainstream business, TUI’s largest, includes tour operating and airline activities.
TUI has focused on cutting costs and selling vacation packages directly to customers, adding clients in the U.K. and Scandinavia, as Europe emerges from the longest recession since introducing a common currency. Unrest in Egypt and other parts of North Africa meant the company had 3 percent fewer customers in the year in its mainstream business.
TUI Travel plans to raise underlying operating profit by between 7 percent and 10 percent this year excluding currency shifts, in line with its medium-term goals.